The threat level was last at critical after an attack on Glasgow Airport
The UK terror threat level has been lowered from "severe" to "substantial", the Home Office has said.
The level was raised in 2007, meaning a terrorist attack was "highly likely". The downgrading means there is a "strong possibility" of an attack.
Home Secretary Alan Johnson said there remained a "real and serious threat" from terrorists and the public would see little change in security measures.
The level is set by the UK's Joint Terrorism Analysis Centre (JTAC).
The JTAC, which is a unit within the security service MI5, sets the level based on the intelligence available about terrorist intentions and capabilities.
According to BBC home affairs correspondent Danny Shaw, security sources said the decision to change the threat level was a "finely-balanced judgement".
The sources said the level was "under constant review" and could go up again if it was felt appropriate, our correspondent added.
The JTAC states that the current threat to the UK "comes principally from al-Qaeda and related networks", but "Northern Ireland-related terrorism [is] also still a threat".
At "substantial", the threat from terrorism is at its lowest since levels were first made public three years ago.
Under the previous, slightly different system, the level was lowered to the equivalent of "substantial" in May 2005 - two months before the 7 July London bombings.
In a statement, the home secretary said: "JTAC make their judgements based on a broad range of factors, including the intent and capabilities of international terrorist groups in the UK.
"We still face a real and serious threat from terrorists and the public will notice little difference in the security measures that are in place, and I urge the public to remain vigilant.
"The police and security services are continuing in their thorough efforts to discover, track and disrupt terrorist activity."
THREAT LEVEL SYSTEM
Low - attack is unlikely
Moderate - attack is possible, but not likely
Substantial - attack is a strong possibility
Severe - attack is highly likely
Critical - attack is expected imminently
There are five levels of terror threat, ranging from low - meaning an attack is unlikely - to critical - when an attack is expected imminently. Substantial is the third level on the scale.
The threat was last at critical in June 2007, after an attack on Glasgow Airport and the failed car bombings in central London.
Terror expert David Capitanchik told the BBC that part of the reason for the downgrading may be to show that the war in Afghanistan is, as ministers say, reducing the threat to Britain from al-Qaeda.
"I think the government, and possibly the security services, want to show... that somehow, despite the loss of soldiers, it's being successful - it is actually reducing the threat," he said.
"The other point is that we have a lot more people now working in MI5.
"They are better trained than they were in the past and therefore they are better able to maintain surveillance of any extremists there are in this country."